Today, 1 April, marks the launch of HMRC’s flagship Making Tax Digital programme, designed to streamline tax administration, which requires 1.2m VAT registered businesses earning over £85,000 to keep their records digitally and submit online VAT returns
The new rules, first announced in 2015, will mean most businesses above the VAT threshold will send their VAT return using Making Tax Digital-compatible software for VAT periods starting on or after 1 April.
Latest HMRC figures indicate nearly 100,000 businesses have already signed up to the new service, with over 4,000 businesses joining each day.
Those who are already exempt from online filing of VAT will remain so under Making Tax Digital, and there is further provision for those who cannot adapt to the new service due to age, disability, location or religion to apply for an exemption.
During the first year of VAT mandation, HMRC has said it will take a light touch approach to penalties by not issuing filing or record keeping penalties where businesses are doing their best to comply with Making Tax Digital.
Theresa Middleton, director of the Making Tax Digital for Business programme, said: ‘Tens of thousands of businesses joined our pilot over the last 6 months and have helped us to test and improve the live service ensuring we have the right support in place to help people transition.
‘Now is the time for those businesses affected by MTD who haven’t done so already to begin preparing to switchover and start experiencing the benefits MTD has to offer.
‘You don’t necessarily need to sign-up from day one, but you do need to make sure you’re keeping your records digitally for your next VAT period which starts on or after 1 April.’
HMRC is emphasising that 1 April is not a cliff edge for sign-ups – the first returns under the new system for the majority of businesses, who file VAT quarterly, will not be due until August at the earliest.
Those already using software will need to ensure it is Making Tax Digital-compatible then sign up to the new service and authorise their software.
HMRC has a list of packages available for those who have not used software before. These include products that can be used in conjunction with a spreadsheet for those businesses that do not want to change their underlying record keeping system.
HMRC has published fresh guidance on digital record keeping. This states that if a business uses more than one product to keep digital records, it will need to digitally link them together.
A digital link is a transfer or exchange of data between the products used to keep records. This could include linking cells in spreadsheets; emailing records to an agent; putting records on a portable device to give to an agent; importing and exporting XML and CSV files; and downloading and uploading files.
Businesses must have digital links between the products they use by 31 March 2020, unless they have a letter from HMRC informing them they are in the deferral group. Those in the deferral group, must have digital links between the products they use by 30 September 2020.
HMRC’s advice includes details of which business records must be kept digitally, including details from suppliers and arrangements for those using schemes such as the flat rate scheme, gold special accounting scheme, marginal scheme or the retail scheme.
HMRC’s switch to digital services has proved controversial, with plans to require all businesses to file tax information online scaled down to focus initially on VAT returns.
Androulla Soteri, tax director at MHA MacIntyre Hudson, said: ‘Originally, when MTD was to be introduced for income tax reporting purposes first, it was sold as a way to save businesses money.
‘HMRC no longer sings from this song sheet and it’s just as well, because MTD won’t cut costs. Every client we have will incur a physical or notional cost (in terms of lost time) in transferring to the new system.
‘If MTD applied only to large enterprises this might not matter, but the threshold is a turnover of £85,000. As some software houses are charging up to £700 for the relevant software upgrade, and £200 a month thereafter, MTD is a considerable expense with no upside for many small businesses.’
‘Jumping the gun’
Meanwhile CIOT and ATT are warning businesses against making a false start with Making Tax Digital by ‘jumping the gun’ and signing up too early.
Adrian Rudd, chair of the joint ATT/CIOT digitalisation and agent strategy working group, said: ‘We are concerned at the misconception that in order to be compliant businesses must sign up to Making Tax Digital by the “deadline” of 1 April 2019. This is wrong. While the requirement to maintain digital records applies to many businesses from 1 April, signing up to Making Tax Digital can, and in many cases should, be done at a later date.’
After a business signs up to Making Tax Digital it will no longer be able to submit VAT returns to HMRC through existing channels. Therefore, if a business which submits VAT returns on a calendar quarter basis signs up to Making Tax Digital today (1 April 2019), HMRC will expect the VAT return for the quarter ended 31 March 2019 to be submitted via Making Tax Digital software – it cannot be submitted, for example, by typing the VAT return figures into the portal.
CIOT and ATT caution that if the business has not planned for this it could have real difficulties submitting the VAT return or paying the VAT liability on time (or both), will need to work closely with HMRC to put things right, and may be at risk of penalties.
For example, a business joining for the June 2019 VAT return, the first quarterly VAT return affected, should only register from around the 15 May if they pay by direct debit, or 8 May if they pay manually.
Rudd said: ‘Getting the timing right to sign up to Making Tax Digital is vital. That is why we have prepared a detailed illustration of when businesses should sign up to Making Tax Digital, covering the most common VAT staggers and whether they pay by direct debit. We would encourage businesses and their agents to review this, and HMRC’s guidance on gov.uk, before signing up.’
Report by Pat Sweet